Bain alumni battle for Billabong

Alumni of Bain, the consulting firm formerly led by Mitt Romney, are squaring off in a $527 million takeover battle for Billabong International, Australia’s largest surfwear maker.

Jesse Rogers and Stefan Kaluzny, who previously worked for the Boston-based company, have put their private equity firms Altamont Capital Partners and Sycamore Partners Management behind rival bids for Billabong after three other approaches were rejected or scrapped over the past year.

Altamont and VF Corp, the largest US clothing company, will match a $1.10 offer that Sycamore and Billabong’s US head Paul Naude made December 19, the Gold Coast-based company said in a regulatory statement yesterday.

The shares surged 12 per cent to 94.5 Australian cents late this morning after coming out of a trading halt. They remain 14 per cent lower than the offer price. VF rose 3.3 per cent to $US153.88 in New York yesterday.

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The arrival of a second bidder may not create competitive tension to drive up the offer price as ‘‘you’ve already had a number of proposals go by the wayside,’’ said Grant Saligari, an analyst at Credit Suisse who rates the stock underperform with a price target of 38 cents. ‘‘They’ll be glad to get any offer they get, the company is in such disarray.’’

The Altamont and VF Corp proposal is conditional and subject to due diligence, Billabong said. VF is primarily interested in the Billabong brand while Altamont wants the company’s other brands and assets, the companies said today in a statement.

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Billabong’s shares have plummeted 34 per cent in the past year, following a 78 per cent fall in the previous 12 months, as it recorded its first annual loss since a 2000 listing, sold inventory below cost to clear shelf space, paid penalties to break store leases early, and cut the value of its brands by $343 million.

The stock hasn’t closed above 87 cents since the bid from Sycamore was announced on the same day as the company cut its earnings forecast by as much as 49 percent.

A day later Craig White, chief financial officer since 2005, left the company. His replacement, Peter Myers, was announced January 11 alongside a restructuring of Billabong’s management units.

TPG approaches

TPG International, the private equity group run by David Bonderman, made two separate approaches for Billabong last year. Another unnamed bidder that people familiar with the matter identified as Bain Capital carried out due diligence on a $1.45 bid matching TPG’s second offer, before walking away in September.

Mr Romney founded the private equity firm, which has regularly traded staff members with Bain & Co without having any formal association.

‘‘When such a brand name sells at such distressed valuations the opportunity is great to turn that around,’’ said Albert Saporta, an analyst at Makor Capital who rates the stock a buy. ‘‘Billabong is a great brand name. The fact that the company is not going very well right now is probably due to bad management.’’

The $1.10 offer price values Billabong at less than 14 per cent of its peak market capitalisation of $3.8 billion in mid-2007, and little more than half the $1.02 billion value that founder Gordon Merchant said in February he’d turn down if TPG were to offer it.

Still, it prices Billabong’s debt and equity of $688 million at about 11.6 times the median of its latest forecast Ebitda. That compares with a median of 14.8 times Ebitda in 16 takeovers of clothing companies worth more than $100 million over the last five years, including VF Corp’s $1.97 billion 2011 deal to acquire Timberland, according to data compiled by Bloomberg.

Billabong’s board will spend six weeks evaluating the latest offer and the one from Sycamore, the company said in its statement yesterday.